Boiling Spring Lakes ABC Board Performance Audit Report

Transcription

1 Boiling Spring Lakes ABC Board Performance Audit Report

2 September 10, 2013 Boiling Springs Lakes ABC Board Mr. George Ball, Chairman 3130 George II Hwy SE Southport, NC Dear Chairman Ball, We are pleased to submit this performance audit report on the Boiling Springs Lakes ABC Board. The objective of this audit was to examine existing policies, practices, and controls and to provide recommendations on methods to improve operating efficiency at the ABC Board in accordance with new legislative mandates. (919) Your Name Director Permit Division (this is editable) The report consists of an executive summary, background information, operational findings and recommendations along with your General Managers response to our recommendations. This report will be posted on the Commission s public web site. We would like to thank you, the ABC Board and your staff for the assistance and cooperation provided to us during the audit. Additionally, we appreciate the efforts your Board has made to comply with the new performance standards along with the steps being taken to increase operating efficiencies at your ABC store. If we can be of assistance in the future, please advise. Respectfully, Michael C. Herring Administrator CC. North Carolina Association of ABC Boards

3 TABLE OF CONTENTS Financial Analysis..6 Operational Observations, Findings, and Recommendations.10 Boiling Spring Lakes ABC Board Response.18 Recommendation Follow up..20 3

4 EXECUTIVE SUMMARY By state law, the ABC Commission shall ensure that all local ABC Boards comply with established performance standards by conducting regular performance audit evaluations. Performance standards shall include, but are not limited to, standards that address enforcement of ABC laws, store appearance, operating efficiency, solvency, and customer service. Performance audits are examinations of existing operating policies, practices, controls, and activities to determine those areas in which there may be a need for improvements. This audit was conducted in accordance with Government Auditing Standards. This report details findings and recommendations with regard to organizational and operational issues. To achieve the objectives of the audit, ABC Commission staff Reviewed applicable General Statutes, ABC Commission Rules, and administrative policies; Reviewed applicable reports and studies of ABC boards with similar size and geography; Verified compliance with Commission and Board policies; Reviewed organizational chart and job descriptions; Reviewed ABC store annual audit for the fiscal year 2011; Visited the store; Interviewed key ABC board personnel. The Boiling Spring Lakes ABC Board has responded to the performance audit recommendations and is striving to plan steps toward becoming more profitable while reducing costs and meeting the needs of customers. Policies and procedures have been adopted and implemented to maintain compliance with the ABC statutes and rules and to strengthen internal controls. 4

5 BACKGROUND INFORMATION Chapter 291 of the 1975 Session Laws authorized the Town of Boiling Spring Lakes to hold an election upon a petition of at least fifteen percent of registered voters. The referendum was held on September 13, 1875 and passed 109 to 31. The first sale occurred on February 2, Special legislation allows the board to sell mixed beverages. Upon election of an ABC store, the Town of Boiling Spring Lakes was authorized to create an ABC Board consisting of a chairman and two members to serve for three year terms. Current board members are George Ball, board chairman, Don Beckley and Donna Baxter, board members. The Boiling Spring Lakes ABC Board operates one retail store. The board staffs one full-time general manager and two part-time employees. The general manager is responsible for overseeing and managing daily operations of the store including supervising personnel and financial management. The store clerks are primarily responsible for selling products to customers, store upkeep, and inventory management. 5

6 FINANCIAL ANALYSIS Note: Because of a fire and the store closure for more than half of the fiscal year, the financial analyses is based on fiscal year Inventory Turnover The inventory turnover is calculated by dividing the cost of liquor by the average inventory in the system (Cost of Liquor/Average Inventory). The Boiling Spring Lakes ABC Board receives deliveries twice a month; the inventory turnover rate is 5.8. Recommendations: Continue increasing inventory turnovers by: o Cross-merchandising or moving stock within store to increase visibility and to encourage more impulse shopping, o Utilizing end caps and shelf space as much as possible to highlight slow moving and new products; o Analyzing sales data and history reports to plan orders and to take advantage of Special Purchase Allowance offers whenever possible; Operating Cost Ratio Operating costs are calculated by dividing total operating expenses less depreciation by the gross profit on sales (Total Operating Expenses less Depreciation/Gross Profit). Below are the average cost ratios for boards with and without mixed beverage sales (MXB): Boards with 3 or more stores with MXB cost ratio 0.67 or less Boards with 3 or more stores without MXB cost ratio 0.94 or less Boards with 2 stores (with and without MXB) cost ratio 0.83 or less Single store boards with MXB cost ratio 0.77 or less Single store boards without MXB cost ratio 0.93 or less The Boiling Spring Lakes ABC Board operates one retail store with mixed beverage; the operating cost ratio is In fiscal year 2011, the store was under construction for renovations. To meet the cost ratio goal and remain at current operating expense of $71,067, revenues must be increased to approximately $400,000, a 26% increase. To meet the cost ratio goal and remain at current revenue of $316,488, expenses must be decreased to approximately $58,000, a 23% decrease. Recommendations: Monitor budget frequently and more closely to ensure that actual expenses do not exceed budgeted amounts. Provide year-to-date reports to board members detailing how much has been spent. Request bids annually from various vendors to get the best rates possible on financial audits, specific utilities, maintenance contracts, and credit card processing fees. 6

7 Working Capital Working capital is total cash, investments, and inventory less all unsecured liabilities. Gross sales means gross receipts from the sale of alcoholic beverages less distributions as defined in G.S. 18B- 805 (b), (2), (3), and (4). The Commission has set efficiency goals based on the following breakdown: Four months for boards with gross sales less than $1.5M Three months for boards with gross sales less than $50M and greater than or equal to $1.5M Two months for boards with gross sales equal to or greater than $50M In FY2011, Boiling Spring Lakes ABC had a working capital of $53,486 which is equivalent to approximately four months gross sales and is within the limits of NCAC 02R Profit Percentage to Sales The profit percentage to sales is calculated by dividing the total income before distributions by the total liquor sales (Total Income before Distribution/Total Liquor Sales). The Commission has set goals based on the following breakdown: Gross sales greater than $10M target rate at 9% Gross sales between $2M to $10M target rate at 6.5% Gross sales less than $2M target rate at 5% In fiscal year 2012, the Boiling Spring Lakes ABC Board had gross sales of $486,243, income from operations was $2,885, a 0.59% profit percentage to sales. Factors affecting sales and profitability: US Census Bureau reports an estimated population of 5,506 in 2011; Sales decreased 34.9% over previous year due to closure; Surrounding counties and towns with ABC stores include Belville, Oak Island, Southport, Brunswick Co, and New Hanover Co. Growth and development in surrounding, more heavily populated and tourist attracted areas contribute to the shift in shopping patterns away from rural areas which affect sales and profitability. 7

8 Sales Amounts Below is a sales history analysis of similar size boards compared with Boiling Spring Lakes ABC Board. This chart analyzes the sales trends for the past ten years Sales History Boiling Spring Lakes Newton Grove Norwood Years Recommendations: To increase profitability, consider testing different marketing strategies such as crossmerchandising, splitting cases with other ABC stores, etc; Invite the Association s Efficiency Committee to visit the stores with the possibility of making additional recommendations to improve profitability. 8

9 Law Enforcement Distributions City/County Distributions Distributions G.S. 18B-805 (c) (2) requires the board to distribute quarterly to law enforcement. The remaining profits are to be distributed to the Boiling Spring Lakes General Fund. In FY2011, Boiling Spring Lakes ABC did not make the required minimum distributions totaling $14,510 to the Town of Boiling Spring Lakes. Note: Renovations to the store occurred which resulted in lower profits in 2010/2011. However, the board obtained approval from the City of Boiling Spring Lakes to withhold distributions until project was completed. $109,628 in Excise and other taxes were paid to the NC Department of Revenue and the town. Additional distribution of $1,081 was paid to the City of Boiling Spring Lakes. Below is a chart analyzing the high-low trend of distributions to law enforcement and to the town Distribution History 30,000 25,000 20, ,000 10,000 5,000 - Law Enforcement City/County Distributions Years 9

10 OPERATIONAL OBSERVATIONS, FINDINGS, AND RECOMMENDATIONS On April 2, 2013, ABC Board Auditor, Moniqua S. McLean, visited the Boiling Spring Lakes ABC store and interviewed Cheryl Riker, general manager. The following are the findings, observations, and recommendations related to the performance audit. Store Appearance and Customer Service Observations The Boiling Spring Lakes ABC Board operates one retail location with shelf space of approximately 500 linear feet and approximately 370 product codes. The store has been re-constructed as a result of a fire. The store was clean and well-lit. Bottles were fronted and dusted. Counter areas were free of clutter and supplies were easily accessible. A television was present tuned to the weather channel. Exterior signage and landscaping around the store was clean and free of trash. The Fetal Alcohol Syndrome poster is displayed. Security systems are in place and functional. The state price book is available along with monthly sales lists. Sales clerks interaction with customers was attentive, courteous, and eager to meet the needs of customers. When not assisting customers, clerks were busy stocking shelves and cleaning the store. No Recommendations. Personnel and Training Two out of three board members have not attended the initial mandatory ethics class. Training is provided as new information becomes available to current staff. Cross training opportunities have been extended to key employees in the event the general manager was suddenly unavailable. An employee handbook was submitted to the Commission in The board is currently updating the handbook to reflect current policies and procedures. Recommendations: Bring all board members into compliance with state ethics requirement. All board members must receive ethics education within 12 months of the initial appointment date. All reappointed board members must receive ethics education within 12 months of the reappointment date. Refer to Appendix C (1) for statute. Provide additional training that will include alcohol education, customer service, and product knowledge. Contact the Commission for a list of approved courses and other boards that have a training module(s) in these areas. 10

11 ABC Board Policies Policies adopted and submitted to the Commission include: o Code of Ethics o Law Enforcement Contract o State Travel Policy o FY2012 Annual Audit o FY2013 Budget (Proposed and Adopted) o Employee Handbook (Adopted 2002) A mixed beverage policy was submitted to the Commission in Management is updating the policy to reflect current practices. Policies not adopted include: o Price Discrepancy Recommendations: Although understood by all employees, have a written price discrepancy policy. Having written procedures will allow future employees to be knowledgeable about current practices. Refer to Appendix C (2) for rule. Internal Control Procedures Physical inventory counts are performed monthly by the general manager and another clerk. Frequent spot checks are performed occasionally throughout the month. The general manager and another clerk often verify each other s counts. If discrepancies occur, the general manager and another clerk will investigate and recount. Once complete, only the general manager will adjust the system to match with the actual store count. Unsalable items are adjusted immediately. Cash drawers are counted daily. All clerks are responsible for their own cash drawer. Although understood, there are no written procedures/policies explaining how to handle cash drawer overages and shortages. Bank deposits are made regularly as required by the ABC Commission rule. Bank notification is received and matched with corresponding daily register reports. Bank reconciliations are completed monthly by the general manager. The board has a credit card used for purchases of office supplies. The general manager is the authorized user and reconciles the credit card statement. Recommendations: Implement procedures for handling cash drawer overages and shortages. Incorporate these procedures into the updated employee manual for current and future employees. 11

12 To ensure stronger internal controls of credit card purchases, adopt a written credit card usage policy. Document procedures for the usage including: o Who has authority to use the card, o What types of items the card may be used for, o Personal usage is prohibited; o An itemized receipt for every transaction is required, o Maximum limit allowed on purchases before approval is needed from the finance officer, o Receipts are to be submitted within 15 days of the purchase; o Have someone other than the person purchasing reconcile the credit card statements. To strengthen internal controls and to ensure accountability, have board members open and review the monthly credit card statement for accuracies and verification. 12

13 Administrative Compliance Findings and Observations Board meeting minutes were viewed and referenced the conflict of interest statement, and followed the order of proceedings for conducting a business meeting. Board member appointment dates and compensation amounts is current on the Commission website. Board member and general manager compensation is in compliance with G. S. 18B-700 (g) and (g1). Law enforcement activity reports have been submitted to the Commission as required by G.S. 18B-501 (f1). Nepotism The board is in compliance with G.S. 18B-700 (k). All board members and general manager are bonded for $50,000 as required by G.S.18B-700 (i). The board has obtained a one year extension from the Commission for the general manager to serve as the finance officer. Orders for liquor and other common orders do not bear the pre-audit certificate as required by G.S.18B-702 (m). All checks bear the approved certificate and are signed by the general manager and usually the board chairman. Out of approximately 370 product codes, approximately fifty product codes were sampled and three product codes did not reflect the correct price. Recommendations: Appoint a finance officer other than general manager or ask the Commission for an additional two years exemption. Refer to Appendix C (3) for statute. Place the pre-audit certificate with the finance officer s signature on the order to LB&B. When ordering supplies, have a purchase order or order confirmation that will have authorization from the finance officer before the transaction takes place. Refer to Appendix C (4) for statute. Audit shelf price tags on a rotating schedule to ensure accuracy. Incorporate such practices within spot check time periods. 13

14 Expense Amounts Expense Amounts APPENDIX A Expense History 120, ,000 80,000 60,000 40,000 20,000 Boiling Spring Lakes Newton Grove Norwood Years Although the overall expenses were low for FY2012 as a result of the fire, for past years Boiling Spring Lakes ABC s expenses have increased and are higher compared to other similar size boards Common Expenses Boiling Spring Lakes Newton Grove Norwood 0 Salaries Insurance Professional Fees Expense Categories Bk/CC Charges Boiling Spring Lakes ABC s common expenses are not out of line with other similar size boards. Note: Boiling Spring Lakes ABC s professional fees include quarterly financial reports submitted by the auditor. 14

15 APPENDIX B Exterior view. Counter view. 15

16 16 Interior view.

17 APPENDIX C (1) G.S. 18B-706 (b) states, Each member of a local board shall receive a minimum of two hours of ethics education within 12 months after initial appointment to the office and again within 12 months after each subsequent appointment to the office. (2) NCAC 02R.1706 (b) states, If a local board has a price discrepancy between the price on the shelf or bottle and the cash register, and the price on the shelf or bottle is lower, the local board shall sell the item at the shelf or bottle price and correct the shelf or bottle price to match the Commission s published uniform price. (3) GS 18B-702 (j) states the local board shall designate (i) a part-time or full-time employee of the board other than the general manager or (ii) the finance officer of the appointing authority with consent of the appointing authority to be the finance officer for the local board. (4) 18B-702 (m) states the contract, agreement, or purchase order shall include on its face a certificate stating that the instrument has been pre-audited to assure compliance. The certificate, which shall be signed by the finance officer or any deputy finance officer approved, shall take substantially the following form: This instrument has been pre-audited in the manner required by GS 18B-702. (Signature of finance officer) 17

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20 BOILING SPRING LAKES ALCOHOL BEVERAGE CONTROL BOARD RECOMMENDATION Internal Control/ABC Board Policies: Adopt the following policies: Mixed Beverage Policy **Price Discrepancy Policy Credit Card Policy Cash Overage/Shortage Policy Recommendation Follow-Up REQUIRED BY STATUTE Yes No Note: Required by rule. IMPLEMENTATION STATUS (Please provide documentation supporting implementation status.) Fully Implemented Partially implemented 50% complete. (Explain below.) Not implemented (Explain below.) All policies have been adopted and submitted to the Commission. Administrative Compliance: Appoint a finance officer other than the general manager. Yes No (Please provide documentation supporting implementation status.) Fully Implemented Partially implemented % complete. (Explain below.) Not implemented (Explain below.) The board has requested an extension from the Commission allowing the general manager to be the finance officer.

21 Training: BOILING SPRING LAKES ALCOHOL BEVERAGE CONTROL BOARD RECOMMENDATION Have all newly appointed board members complete the ethics training. Recommendation Follow-Up REQUIRED BY STATUTE Yes No IMPLEMENTATION STATUS (Please provide documentation supporting implementation status.) Fully Implemented Partially implemented % complete. (Explain below.) Not implemented (Explain below.) A new board member has been granted an extension from the Commission to complete the upcoming training via webinar. The Commission will continue to follow up until completed.